Netflix earnings show strength amid media chaos

The main conclusion from NetflixSecond quarter earnings are … good.

That’s right. The fundamental business of a major media and entertainment company is fine.

Netflix added 5.9 million subscribers in the quarter, a sign that two of its key initiatives in 2023 — cracking down on passwords and launching a cheaper $6.99-a-month ad tier — are driving new subscribers. Netflix added 1.2 million subscribers in the United States and Canada in the quarter, its biggest regional quarterly gain since 2021.

This is not a story for the rest of the media industry. Disney and Warner Bros. Discovery spent a year cutting content from its streaming services to avoid paying residuals and save on licensing fees. Both companies have laid off thousands of employees over the past 12 months to boost free cash flow. Paramount Global and ComcastBoth NBCUniversal said 2023 would be the biggest annual loss for their streaming businesses.

Meanwhile, Netflix boosted its free cash flow estimate to $5 billion for the year. The company previously estimated it would take in $3.5 billion, but strikes by actors and writers will reduce spending on content. This means that Netflix will actually have even more money than previously expected.

Netflix predicts that the number of subscribers will again be around 6 million in the next quarter. The company said earnings will accelerate in the second half as it sees “all the benefits” of cracking down on password sharing and steady growth in its ad-supported plan.

Netflix’s valuation fell 60% last year as subscriber growth stalled. The company spent a lot of time on the earnings conference call to focus on and explain its new video game business, which was introduced in mid-2021 to help start new growth.

This quarter’s shareholder letter barely touches on video games.

why? Because, unlike the rest of the media industry, Netflix doesn’t need a new narrative. The old one still works. Streaming is on the rise. Piles of money grow. Advertisement excites investors. Netflix has a steady pipeline of international content and a deep library to weather a prolonged writers’ and actors’ strike.

“The lack of references to video games in the shareholder letter suggests that advertising is the shiny object of the company’s attention,” said Ross Benes, an analyst at research firm Insider Intelligence.

Netflix shares fell 5% after hours. That’s more a symptom of profit locking after Netflix’s big gains this year (up more than 62% as of Wednesday’s close) than anything to be angry about in its first quarterly numbers.

After a sharp drop last year, the company is back on track. And it was not even necessary to transfer.

Disclosure: NBCUniversal Comcast is the parent company of CNBC.

— CNBC’s Lillian Rizzo contributed to this article.